Cost of services increased to $452.8 million for the six months ended June 30, 2022 from $287.7 million for the same period in 2021, an increase of $165.1 million, or 57.4%. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a percent of total revenues increased to 63.3% compared to 61.4% for the same period in 2021 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier due to the increase in sales volume.
Selling, general, and administrative expense.
Selling, general and administrative expense for six months ended June 30, 2022 increased to $154.4 million from $113.5 million compared to the same period in 2021, an increase of $40.9 million, or 36.0%. The change was primarily due to increases in (i) compensation related costs, primarily driven by increases in management performance compensation due to significant year-over-year growth in operating results; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) return to
in-person
agent and client business events, conferences, and meetings.
Depreciation and amortization expense.
Depreciation and amortization expense increased to $7.2 million for the six months ended June 30, 2022 from $6.0 million for the same period in 2021, an increase of $1.3 million, or 21.6%, principally related to additional amortization of intangible assets related to recent acquisitions and additional amortization of mortgage servicing rights due to the cancellation notices received on certain servicing contracts.
Other (Expense) Income, Net
Other (expense) income, net decreased to a net expense of $11,000 for the six months ended June 30, 2022 from $2.4 million of income for the same period in 2021. The decrease was primarily driven by an unfavorable change in the value of our deferred compensation plan assets that are held in a rabbi trust and due to the $0.3 million loss on sale of the remaining mortgage servicing rights.
Interest expense was comparable for the six months ended June 30, 2022 and 2021, and primarily relates to interest expense on the Company’s stock appreciation rights liability.
Provision for Income Taxes
The provision for income taxes was $25.7 million for the six months ended June 30, 2022, compared to $17.4 million for the same period in 2021, an increase of $8.3 million. The effective income tax rate for the six months ended June 30, 2022, was 25.5% compared to 27.2% for the same period in 2021. The effective income tax rate decreased primarily due to an increase in windfall tax benefits, net related to the settlement of stock-based awards, partially offset by an increase in permanent items that are not tax deductible.
Non-GAAP
Financial Measure
In this quarterly report on Form
10-Q,
we include a
non-GAAP
financial measure, adjusted earnings before interest income/expense, taxes, depreciation and amortization, stock-based compensation and other
non-cash
items, or Adjusted EBITDA. We define Adjusted EBITDA as net income before (i) interest income and other, including net realized gains (losses) on marketable debt securities,
and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation, and
(vi) non-cash
Mortgage Servicing Rights (“MSR”) activity. We use Adjusted EBITDA in our business operations to evaluate the performance of our business, develop budgets and measure our performance against those budgets, among other things. We also believe that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance. However, Adjusted EBITDA has material limitations as a supplemental metric and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a useful management metric to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and
non-cash
items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):